» Business » Don't stop your SIP in equity funds

Don't stop your SIP in equity funds

By Sanjay Kumar Singh
August 27, 2019 08:30 IST
Get Rediff News in your Inbox:

SIPs in equity funds are for the long haul, at least 7-10 years. Investors should not change their horizon now, suggests Sanjay Kumar Singh.

Illustration: Uttam Ghosh/

Haril Kohli, a Gurugram-based graduation student and part-time worker at an advertising firm, has been running systematic investment plans (SIPs) in a couple of equity funds for the past two years.

With the markets in correction mode, news of the economic slowdown dominating the headlines, and the SIP returns of his funds entering negative territory, Kohli is thinking of stopping his investments.

"Going by the current state of the market, I don't think my funds will give the kind of returns I was expecting from them," he says.

The BSE Sensex, Midcap and Small-Cap indexes are down 6.47 per cent, 9.01 per cent, and 12.51 per cent respectively over the past month.


Kohli is not alone.

"We hear more of direct investors stopping their SIPs. Investors who have financial advisors are still holding on," says Radhika Gupta, chief investment officer, Edelweiss Mutual Fund.

Even other fund managers say this has been happening.

SIP contribution has fallen marginally from Rs 8,238 crore in April 2019 to Rs 8,122 crore in June, according to data from the Association of Mutual Funds in India.

Investment advisors are feeling the pressure too.

Many say they are inundated with queries from clients.

Here are answers to some of the questions playing havoc with the investors' peace of mind.

How long will the downturn last?

This is the foremost question on every investor's mind, but no one has an answer to it.

The Budget did not provide a fiscal push to growth.

The higher income tax surcharge has led to foreign portfolio investors (FPIs) pulling out Rs 11,341 crore from the Indian equity markets since the Budget.

"Things could continue to remain difficult for some time. Investors have no alternative but to remain long-term oriented in equities," says Gupta.

Should I stop my SIP?

The answer is an unequivocal no.

SIPs in equity funds are for the long haul, at least 7-10 years.

Investors should not change their horizon now.

"You choose the SIP mode of investing to be able to buy units cheaper when the markets are down and reap the benefit of rupee-cost averaging. By stopping your SIPs, you will forgo this advantage," says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.

Some investors are asking if they should stop their SIPs now and restart them when the market becomes cheaper.

"The whole purpose of running an SIP is to remove the need for such market timing," says Dhawan.

Should I change my category?

Until recently, large-cap funds were doing better than mid- and small-cap funds.

So, investors are asking if they should shift from the latter to the former.

The answer depends on your existing portfolio.

"If at the time of investing, you had assessed your return profile and done proper category allocation, there should be no need for large-scale shifts from one category to another," says Kaustubh Belapurkar, director-manager research, Morningstar Investment Adviser India.

Ideally your portfolio should have some exposure to all the market caps.

"Shift not because a particular category is doing better but to make your portfolio more balanced," says Dhawan.

In 2017, mid and small-cap funds had outperformed in a big way.

Many investors who entered the market that year put all their eggs in the mid- and the small-cap baskets, creating high-risk portfolios.

Such investors should increase exposure to the large-cap category.

"There may also be an investor who had booked profits and moved out of the mid and small-cap categories in the latter part of 2017 because he found them to be overheated. He may have moved completely into large-cap funds. Such an investor can now add mid and small-cap funds to his portfolio," says Vivek Agarwal, co-founder,, an online advisory and investment platform.

Adds Gupta: "The risk-reward for the mid- and the small-cap categories is better today than for large-caps."

The bottomline: Build portfolios diversified across categories to be able to capture returns across years.

"There will be some years when large caps will outperform mid- and small caps, and others in which the latter will do better," explains Gupta.

Should I change my fund?

Many investors are seeing another fund within the same category doing better and are wondering if they should shift to it.

Experts say if you had chosen your fund manager carefully, there is no need to change your fund even if it is lagging currently.

Different fund managers follow different investment styles.

In a given market, one investment style will do well while others will not.

Investors need to be patient to reap the benefit of their fund manager's style.

Change your fund only in a few circumstances.

"If the fund manager based on whose record you had invested has quit, the fund is not being true to its mandate, or the fund house is in trouble, then you may change your fund," says Agarwal.

If your fund is under-performing, give it time.

"If your SIP has been running for one year and the fund is under-performing, give it one more year," says Dhawan.

Morningstar conducted a study in the US and several other developed markets recently covering 15 years up to 2018.

It mapped the out-performance of active funds vis-a-vis their indices for each of the 180 months.

"We found that just 5 per cent of the total months accounted for the bulk of an active fund's out-performance over its index. If an investor was not present in a fund during those months, he would have fared no better than if he were in an index fund," says Belapurkar.

When you shift to a fund that has been doing well lately, you may be entering one whose strong run is behind it and exiting one whose performance may be poised for a take-off.

Should I invest more now?

This is a good idea.

However, avoid lumpsum investments.

If the markets fall, the value of your investment will erode.

"Stagger your investments over 6-12 months," says Belapurkar.

Having an allocation to debt to make your portfolio more stable.

Buy a US-focused fund to diversify internationally.

Get an investment advisor if you need one to handhold you during turbulent market conditions.

Finally, remember that investors who keep investing during downturns make money over the long term.

Get Rediff News in your Inbox:
Sanjay Kumar Singh
Source: source

Moneywiz Live!